Features

The Year in Review

By David Savastano, Ink World Editor | September 2, 2005

New technologies highlighted by Drupa and price increases based on rising raw material costs are among the year�s most notable trends.

For the printing ink industry, 2000 was a year of major significance. Unlike 1999, when consolidations changed the face of the industry, 2000 marked the introduction of a host of new technologies, and the beginnings of industry-wide price increases in the face of escalating raw material costs.

As the cost of crude oil continued to rise, suppliers of key raw materials implemented price increases. Facing an even tighter squeeze on already low profits, ink companies began to raise their own prices.

In many ways, the defining moment for the printing industry in 2000 was Drupa. The 14-day fair in late May drew more than 430,000 attendees, and emphasized the powerful new role that digital technologies will play in the future.

Profitability and Prices
Many of the major ink companies reported a good year in sales, but that did not necessarily correspond to profits.

“We’ve had a fairly good year, with a modest real growth of 5 to 6 percent, and I think that most of the companies within our niche had similar increases,” said Jeff Koppelman, president of Gans Ink & Supply Company, which celebrated its 50th anniversary this past year. “I believe that 2000 has been a decent year for most in terms of revenue. Profits, however, remain consistently below where we would like to see them, and where we believe they should realistically be.”

“I think 2000 was flat in terms of profits, and I hope it will improve next year,” said Harvey Brice, president of Superior Printing Ink. “As long as companies are competing for market share, that’s what’s going to happen. We didn’t meet our expectations, but it wasn’t bad, which I think was indicative of the industry.”

“We’ve had a good year,” said Mike Fox, president of Nazdar. “We established the Nazdar Mexico City branch in January, providing us with important local access to growing markets in Mexico and Latin America. We also continued to develop our presence in China. Screen printing and digital imaging are increasingly international industries, and our opportunities are worldwide.”

After 1999’s dramatic series of mergers and acquisitions, culminating in Sun Chemical’s $530 million purchase of Coates, 2000 seemed relatively quiet. The most important acquisition came in late spring, when Flint Ink acquired New York-based Alper Ink Group, which had $160 million in sales in 1999. Alper Ink Group included Progressive Ink, Arcar Graphics, Patriot Printing Ink and Alper Dispersions.

This gave Flint Ink increased access in the packaging field, which was Alper’s strength. Officials are continuing to work together to assimilate the two companies.

“Alper and Flint Ink have seen good synergies in products and technology, and we are in the process of taking the best practices from both companies as we move forward in 2001,” said Dr. Graham Battersby, vice president of R&D at Flint Ink.

Price Adjustments
Years of stagnating prices, combined with the ever-increasing cost of raw materials, has taken a toll on ink companies. In addition, the low returns on capital, which the National Association of Printing Ink Manufacturers (NAPIM) estimated at 10.2 percent in 1999, are a serious cause for concern.

Over the years, the key to the success of any increase is whether the two largest ink manufacturers, Sun Chemical Corporation and Flint Ink Corporation, are raising their own prices. This was the case in 2000. Effective Oct. 16, Sun raised packaging ink and coatings prices 6 percent, following its 6 percent publication ink price increase on June 15. For its part, Flint Ink raised its packaging ink prices 6 percent as of Nov. 1, and had earlier issued an 8 percent price increase in its news ink division.

The reasons for increasing prices are numerous. Raw materials, spurred by the near tripling of crude oil prices during the past two years, are rapidly moving up. The costs of transportation, wages and benefits, and environmental compliance are likewise on the rise. In addition, the cost of developing new products is significant.

“There have already been modest to significant price increases in raw materials this year, with more notices coming in from practically everybody we deal with,” said Mr. Koppelman, who also serves as NAPIM’s treasurer. “At the same time, continuing to escalate are the general costs of doing business, such as fuel, salaries and the entire range of employee benefits.”

Color Converting Industries (CCI) had a strong year sales-wise in 2000, although company officials reported that margins are still “squeezed.” CCI is in the process of raising prices 6 percent on colors, extenders, and coatings, and 5 percent on whites as of Dec. 15.

“Several factors triggered this increase,” said Ronald T. Barry, CCI’s chairman and CEO. Mr. Barry, this year’s recipient of NAPIM’s prestigious Ault Award for outstanding service to the industry, cited “dramatic increases in raw material prices coupled with the fact that we have not had an across-the-board price increase since 1995, and increases in other costs related to doing business, such as transportation, energy, and labor.”

“Sun Chemical has held the line on price increases for the past five years,” said Chris Morrissey, vice president, sales and marketing, Sun Chemical Corporation (GPI). “Meanwhile the costs of producing ink – raw materials, labor, environmental compliance and distribution – all have continued to creep up. In combination, this has accounted for a rise in costs that exceeded 10 percent over that period.

“The bottom line is that the entire ink industry is facing returns on investment that have dipped to the point where they threaten our ability to bring new technologies to market, build more efficient production facilities and provide value-added services to help our customers streamline their processes,” Mr. Morrissey concluded. “Sun Chemical continues to believe that its customers seek value in their ink purchases. They want high quality inks, but also innovation to capitalize on changing needs and new opportunities, reliable sourcing, and expertise that can help them drive costs out of their supply chain.”

“The ink industry has absorbed increasing raw materials costs over the past several years, without passing them on to printers,” said Kathy Marx, vice president of marketing for Flint Ink. “That has had a negative effect on our ability to reinvest in our business and keep ahead of the technology curve in order to continue to bring about new products that will enhance our customers’ ability to serve their customers’ needs.”

All of these reasons have forced ink companies to move their prices forward, no easy feat in the highly competitive marketplace. So far, the response has generally been one of acceptance from printers.

“In most cases, the increases have been accepted by the market though it is still too early to say for certain,” Mr. Barry said. “The path was nicely paved by the big guys and now we expect to behave appropriately.”

“Increased prices were generally accepted,” Mr. Brice added.

Manufacturing Improvements
Raising prices was a last alternative for ink companies, which had done all they could to improve cost efficiencies.

“In an attempt to offset this, Sun Chemical has devised advanced ink formulations, innovative production techniques as well as new administrative and sales procedures to increase our productivity, while helping printers to control their ink management costs,” said Mr. Morrissey.

“Because of our connection to the petroleum industry, we’re seeing the costs of some raw materials going up. Rather than automatically pass those increases through to our customers, we strive to achieve greater efficiencies on the production and distribution side. We try to create a balance that provides value at a competitive price,” Mr. Fox said.

One idea to further increase prices in relation to value-added services is to present a menu of options for printers, ranging from a base price to more expensive options. This is what is known as unbundling services.

“There has been a lot of talk in the ink and printing industries about unbundling services,” Mr. Morrissey said. “There are some printers whose only concern might be to obtain an ink product at the lowest possible price without any additional expectations other than basic performance. Other printers recognize it is necessary to have additional services, and they are prepared to pay for them because they see lower total operating costs and believe their ability to attract customers in the long term is dependent upon adding value to their product.

“If customers tell us that they want to strike a new balance between price and service, we have the flexibility to find solutions for them,” Mr. Morrissey added. “Not surprisingly, we are hearing there is real interest in the printing industry.”

“This is an area where we see potential to really change the business model that has existed in the ink industry for many years,” said Ms. Marx. “While we haven’t developed an approach as yet, we’re evaluating it.”

Single Fluid Inks
In order for any company to survive in a time of technological change, it must create innovative new products in anticipation of its customers’ demands. For the printing ink industry, the largest companies have done just that, heralding a new era of products that drew much interest from the printing industry, beginning at Drupa.

“I think in many ways it’s been a breakthrough year, with a number of technologies that were just below the surface being developed just in time for Drupa,” said Dr. John Rooney, vice president of R&D at Sun Chemical Corporation.

Perhaps the most anticipated new printing ink technology featured at Drupa was Flint Ink’s SFI Single Fluid Ink, which eliminates the need to balance ink and water. Fountain solutions will not be required to run SFI, which will be commercialized by segments, and special plates and press adaptations will not be necessary.

“The idea of achieving this has been, from the ink industry’s point of view, the Holy Grail,” said Les Watkins, director of new technology at Flint Ink. “From our point of view, 70 to 80 percent of the problems in litho relate to ink and water. It’s been in the last 13 years that the levels of understanding of chemistry and improved processes have allowed us to explore it in a practical sense. It is more possible than it ever was. Our testing looks good, so far.”

Better productivity results in more profits, and there are many ways a printer can run a more efficient operation. Digital technologies are a key to that success.

“If there was one message at Drupa, it was the emphasis on productivity,” Dr. Rooney said. “How do you simplify the whole process? How do you get litho quality and copier convenience?” To that end, Sun Chemical is also working on its own version of single fluid inks, InstaDry W2, which is presently being beta tested with Heidelberg and will be ready early next year. Its water washabilty feature means there are no VOCs in either the inks or the clean up.

Hybrid and EB Inks Hybrid inks, generally combining the properties of UV and conventional inks, are another area of strong growth, with many companies working on new products.

“Making a UV hybrid makes a lot of sense to the printer,” said Mr. Brice. “You can run it on a press without changing blankets or rollers. If a press is set up for UV, you can also run conventional inks. It’s a tremendous advantage for printers because it offers tremendous flexibility.”

“Hybrid UV inks allow a printer, with minimal modification, to run the whole job in-line,” Dr. Rooney said. “The productivity increase is substantial, and the inks themselves are delivering much better ink quality than a typical UV ink set.”

These improvements come at a cost, primarily the addition of a UV curing station, but the end result will be productivity gains. Hybrid technology will keep improving, and will enhance the quality and financial aspects of printing. “The overall long-term situation makes a lot of sense,” Mr. Brice concluded.

While single fluid and hybrid inks are the two most-talked about areas, a number of companies are coming up with their own unique developments. Energy-curing inks are an area of strong growth in the industry, and new developments, in particular in electron beam (EB), may add to the double-digit gains being posted in this segment. FDA compliant EB coatings, such as Sun Chemical’s new Sunbeam LE series, open new markets.

CCI, in conjunction with its partner, QureTech, is developing energy cure product lines which currently include EB slide angle coatings and UV coatings developed principally for the multi-wall bag markets. In addition, the companies are jointly developing energy cure ink and adhesive technologies.

Areas of Growth There are many sectors of the printing industry that are continuing to show growth, led by digital technologies and packaging applications.

“Over the next 5 to 10 years, Sun Chemical believes UV flexo has the potential for explosive growth, while digital printing also looks very promising if the technology continues to advance,” Mr. Morrissey said. “The key to digital printing is its flexibility. If new technology can overcome digital printing’s graphic limitations and large-size format restrictions while increasing printing speeds, the possibilities are enormous.”

“We are seeing a significant impact from digital technology in particular in segments where on-demand is important, where there is less price sensitivity and where speed is not as important,” added Dr. Battersby. “We expect no major change in newspapers or magazines over the next five years, but we expect to see growth in the use of electronic devices as an alternative to paper-based (printed) transactions.”

“In general, digital and packaging are the two major growth areas,” said Ms. Marx. “Digital seems to be affecting all printing segments and is clearly experiencing the most rapid growth. Packaging will be growing worldwide, particularly as the availability of consumer goods increase in developing countries.”

“We definitely feel that packaging is an excellent niche in terms of growth,” Mr. Barry said. “Within that niche, we predict good growth in lamination applications (e.g. stand-up pouches, case-ready meat packages, and retort applications) and substantial growth in the budding wide web energy cure applications (coatings as well as inks).”

“Sun Chemical sees a continued trend toward short runs for both packaging and publications – with a view to customization,” Mr. Morrissey said. “In packaging, the use of new materials and applications for shrink-wrap labels, stand-up pouches and asceptic system containers can be witnessed in supermarkets every day. Based on Drupa, it is clear that digital printing is not only here to stay, but the number of systems offered compared to five years ago and price levels have changed substantially.”

The Future
What do ink industry leaders foresee for the future?

“Consolidation will continue at a rapid pace on a global basis; not only within the ink industry but also within our customer base and within our customers’ customer base,” Mr. Barry said. “We believe that there will be a shift in perceptions regarding our industry – from packaging ink suppliers being viewed solely as raw material suppliers to packaging ink suppliers being viewed as service providers as well.

“We expect strategy changes that will result in a growing percentage of our revenue stream being derived from services, including information systems,” Mr. Barry said. “These changes will be reinforced by the demand for greater press productivity. We see this as the foundation for why the economics of our industry will shift from that of a ‘unit cost’ to that of a ‘value-provided’ mentality.”

If these changes do happen, then the coming years will be brighter ones for the printing ink industry.